PRHTA New Fiscal Plan 2018 - 2023

PRHTA New Fiscal Plan 2018 - 2023 As Certified by The Financial Oversight and Management Board for Puerto Rico April 20, 2018 New HTA Fiscal Plan 1 Disclaimer ▪The Financial Oversight and Management Board for Puerto Rico (the “FOMB,” or “Oversight Board”) has formulated this New Fiscal Plan based on, among other things, information obtained from the Puerto Rico Fiscal Agency and Financial Advisory Authority (“AAFAF”) and the Puerto Rico Highways and Transportation Authority (“HTA” and together with AAFAF, the “Government”). ▪This document does not constitute an audit conducted in accordance with generally accepted auditing standards, an examination of internal controls or other attestation or review services in accordance with standards established by the American Institute of Certified Public Accountants or any other organization. Accordingly, the Oversight Board cannot express an opinion or any other form of assurance on the financial statements or any financial or other information or the internal controls of the Government and the information contained herein. ▪This New Fiscal Plan is directed to the Governor and Legislature of Puerto Rico based on underlying data obtained from the Government. No representations or warranties, express or implied, are made by the Oversight Board with respect to such information. ▪Any statements and assumptions contained in this document, whether forward-looking or historical, are not guarantees of future performance and involve certain risks, uncertainties, estimates and other assumptions made in this document. The economic and financial condition of the Government and its instrumentalities is affected by various legal, financial, social, economic, environmental, governmental and political factors. These factors can be very complex, may vary from one fiscal year to the next and are frequently the result of actions taken or not taken, not only by the Government, the Oversight Board, and other third-party entities such as the government of the United States. ▪Because of the uncertainty and unpredictability of these factors, their impact cannot be included in the assumptions contained in this document. Future events and actual results may differ materially from any estimates, projections, or statements contained herein. Nothing in this document should be considered as an express or implied commitment to do or take, or to refrain from taking, any action by the Oversight Board, the Government, or any government instrumentality in the Government or an admission of any fact or future event. Nothing in this document shall be considered a solicitation, recommendation or advice to any person to participate, pursue or support a particular course of action or transaction, to purchase or sell any security, or to make any investment decision. ▪By receiving this document, the recipient is deemed to have acknowledged the terms of these limitations. This document may contain capitalized terms that are not defined herein, or may contain terms that are discussed in other documents or that are commonly understood. You should make no assumptions about the meaning of capitalized terms that are not defined, and you should refer questions to the Oversight Board at [email protected] should clarification be required. ▪This New Fiscal Plan is based on what the Oversight Board believes is the best information currently available to it. To the extent the Oversight Board becomes aware of additional information after it certifies this New Fiscal Plan that the Oversight Board determines warrants a revision of this New Fiscal Plan, the Oversight Board will so revise it. New HTA Fiscal Plan 2 Table of Contents I. Executive Summary II. Description of PRHTA III. Infrastructure Agenda IV. Current Situation with Baseline Financial Projection V. Fiscal Measures with Financial Projections VI. Liquidity Situation VII. Debt Sustainability VIII. Implementation Plan Appendix: ▪ FHWA MOU ▪ Summary Fiscal Plan Bridges to July 2017 New HTA Fiscal Plan 3 I. EXECUTIVE SUMMARY New HTA Fiscal Plan 4 Executive Summary (1/2) ▪ Puerto Rico’s economic development requires an efficient transportation system that provides safety, sustainability and high-quality service for its citizens. A safe and efficient transportation system, with feasible options for public transit, is the right of every Puerto Rican, and an imperative for economic development. The Puerto Rico Highways and Transportation Authority (HTA) has four objectives aligned with this goal: (a) transit security and safety projects, (b) improvement of existing transportation infrastructure, (c) completing highway systems, and (d) traffic reduction. This mandate was made dramatically more difficult in the face of Hurricane Maria, which severely damaged the Island’s highway and public transit networks (current estimates of the damages are at $750M+ and growing). The New Fiscal Plan for HTA provides a roadmap for transforming not only the Authority, but also infrastructure across Puerto Rico to catalyze economic growth. ▪ HTA must transform drastically to achieve its goals. Recent performance of this system has lagged nationwide targets. The Puerto Rico transportation system has among the highest fatality rate, poorest pavement conditions, and worst costs of congestion nationwide. HTA has amassed over $6B of debt, and has been unable to deliver on its CIP in recent years, despite underutilization of its workforce. Potential inflation in the construction market after Hurricane Maria constitutes a major risk that would adversely impact HTA’s ability to deliver on a necessary capital program. Given this inflation risk, the CIP will need to be regularly evaluated to ensure successful delivery. HTA faces the task of improving this performance as the responsible entity for developing, operating and maintaining Puerto Rico’s toll roads, highway network, and mass transportation facilities. ▪ The New Fiscal Plan provides a roadmap to ensure a successful transformation of HTA. The New Fiscal Plan transforms HTA from an in-house infrastructure developer to an independently governed contract manager to deliver on a $3B capital program while capturing $413M in revenue and expense opportunities. The plan represents a step change in performance from the recent past. The governance and operating model will be dramatically transformed to orient around outcomes and efficient delivery. At its peak, the capital program is expected to increase by 5x the size of recent programs delivered, on the heels of an MOU with FHWA to improve delivery. Successful implementation of the New Fiscal Plan will ensure HTA is fiscally sustainable, maintains its assets in a state of good repair, reduces traffic in the system, and is prepared for future disasters. New HTA Fiscal Plan 5 Executive Summary (2/2) Successfully implementing a comprehensive transportation sector transformation will require HTA to deliver on the following activities, as detailed in the New Fiscal Plan: ▪ Improving governance and performance management: The New Fiscal Plan outlines a strategy to develop organizational KPIs to incentivize and monitor performance across the organization at the operational level and to ensure that the leaner organization can deliver on its capex plan. The New Fiscal Plan also calls for the recruitment and engagement a Board of diversified professionals to define and implement HTA’s long term strategy. ▪ Pursuing greater revenue opportunities: The New Fiscal Plan details strategies to pursue additional operating revenue opportunities including toll increases and optimization (to ensure that purchasing power of toll revenues keeps up with inflation), discretionary federal funding (including the Community Development Block Grant allocation to Puerto Rico), and ancillary revenue opportunities from real estate, signage, and advertising. ▪ Focusing on operational excellence including capital efficiency: The New Fiscal Plan optimizes capital expenditures through improved project prioritization based on economic benefits/safety, enhanced delivery, and soft cost reductions. To also optimize operating expenses, the New Fiscal Plan requires that certain contracts are re-bid using Title III processes to be in line with competitive benchmarks. To right-size the organization and become a best-in-class lean department of transportation, HTA will complete early retirement programs (Law 211) that are already in progress, and further workforce transition efforts to reduce personnel cost by 15%. HTA will also continue to evaluate concession opportunities that create value, and capture pension savings related to the reform of the Employees Retirement System as detailed in the New Commonwealth Fiscal Plan dated April 2018. ▪ Reducing traffic to drive economic growth: HTA will complete projects already in progress to reduce traffic (e.g. DTL, BRT) and plan for additional projects to further promote economic growth and revenue benefits. New HTA Fiscal Plan 6 II. DESCRIPTION OF PRHTA New HTA Fiscal Plan 7 Puerto Rico Highways and Transportation Authority Mission Vision Lead Puerto Rico towards economic development through an efficient Develop and promote an integrated transportation system that, along with a transportation system, safely and in accord with the environment, while highway infrastructure and service delivery, will facilitate the economic procuring the delivery of excellent service development of Puerto Rico in harmony with the environment About PRHTA ▪ HTA is a public corporation founded with the purpose of continuing

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